Legal Case Studies: Brokers Not Entitled to Commissions on Renewal of Lease

Legal case studies this issue:

Research and analysis by Lisa Harms Hartzler,
Sorling Northrup Attorneys

Brokers were not entitled to commissions on renewal of lease.

In Cushman & Wakefield of Maryland, Inc. v. DRV Greentree, LLC, Maryland Court of Appeals, No. 42 September Term, 2018, decided March 4, 2019, MGP leased a commercial building in Maryland to a government contractor for a five-year term with an option to renew for another five years. The lease provided that upon exercise of the option to renew, the landlord would pay the tenant’s broker a fee of nearly $618,000 and the landlord’s broker a fee of over $463,000. MGP mortgaged the property to Bank of America via a Deed of Trust and assigned the lease as security for its loan.

MGP defaulted on the mortgage and Bank of America took title subject to the lease at a foreclosure sale. BOA then sold the property and transferred its interest in the lease to defendant DRV. When the tenant exercised its option to renew, the plaintiff brokers demanded their commission fees, which DRV declined to pay. The plaintiffs claimed that DRV accepted and agreed to be bound by all of the landlord’s covenants and responsibilities under the lease.

The Maryland court held that defendant DRV was not liable to pay the plaintiff commissions. It first explained that a promise in a lease to pay brokerage commissions on a renewal is a personal promise that does not “touch and concern the land.” Such personal promises are “purely for the benefit of one having no interest in the land” and cannot be enforced against successive owners of real property as a covenant running with the land because that would constitute a burden tending “to hamper and impede real estate transactions to the detriment of owners, purchasers and agents.”

Furthermore, contrary to the plaintiffs’ arguments, DRV did not agree to perform all obligations under the lease when Bank of America assigned its interest to it. The court held that DRV only assumed and agreed to perform all of the obligations under the lease and contracts that were “binding on the assignor.”Neither Bank of America nor DRV signed the lease and MGP’s loan agreements (the Deed of Trust and lease assignment) explicitly said that they “shall not be construed to bind Lender to the performance of any of the covenants, conditions or provisions contained in” the lease.

In Robles v. Domino’s Pizza, LLC, 913 F.3d 898 (9th Cir. 2019), a federal court of appeals reversed the lower court’s dismissal of plaintiff’s complaint alleging that the pizza chain’s website and app violated the Americans with Disabilities Act. The plaintiff was a blind man who accessed the internet by using screen-reading software, which vocalizes visual information on websites. He tried to order a Domino’s pizza online but could not do so because the company’s website allegedly was not designed to allow the plaintiff’s screen-reading software to read it.

The ADA requires covered entities to provide “auxiliary aids and services to ensure that individuals with disabilities are not excluded from accessing the services of a place of public accommodation,” which includes ensuring effective communication. The court noted that the statute applies to the services of a place of public accommodation and is not limited to services provided in a place of public accommodation. However, there has to be some connection between the good or service and an actual physical place. Because customers use the website and app to locate a nearby Domino’s restaurant and order pizzas for at-home delivery or in-store pickup, the required nexus existed between the website and app and Domino’s physical restaurants. Consequently, the “alleged inaccessibility of Domino’s website and app impeded access to the goods and services of its physical pizza franchises—which are places of public accommodation.” The court held, therefore, that the ADA applied to Domino’s website and app. The lower court should not have dismissed the case before the plaintiff had the opportunity to prove that the website was actually non-ADA compliant.

The court also disagreed with Domino’s argument that it did not have fair notice of what it needed to do to comply with the ADA and that application of the ADA in this case would constitute a due process violation. Although the ADA charged the Department of Justice with issuing regulations implementing the statute, the Department has never proposed any helpful guidance. The court held, however, that the lack of specific regulations did not eliminate the statutory duty to comply with the ADA and did not amount to a lack of due process. “Our Constitution does not require that Congress or DOJ spell out exactly how Domino’s should fulfill this obligation.” The case was sent back to the district court for further proceedings.

In Keep Chicago Livable v. City of Chicago, 913 F.3d 618 (7th Cir. 2019), six individuals and Keep Chicago Livable, an organization focused on educating home-sharing hosts, sued the City of Chicago, alleging that the city’s Shared Housing Ordinance violates the First Amendment by impermissibly restraining speech and association and the Equal Protection Clause by arbitrarily treating shared-housing arrangements differently than guest suite and hotel rentals. They also alleged the ordinance is void for vagueness because it is “so prolix as to be incomprehensible.” The ordinance imposes many requirements and restrictions, such as host registration and business licenses, geographic eligibility requirements, restrictions on how many units within a larger building can be rented, prohibition on such rentals in certain buildings, and an array of health, safety and reporting requirements. Violators are subject to fines and other penalties, including license revocation.

Unfortunately, the Seventh Circuit Court of Appeals did not reach the merits of the plaintiffs’ case, holding that they lacked standing to sue. Standing requires a three-fold demonstration: (1) an injury in fact; (2) fairly traceable to the defendant’s action; and (3) capable of being redressed by a favorable decision from the court. Standing must be present at all stages of the litigation. By the time this case reached the appellate court, none of the individual plaintiffs continued to have standing to sue—they had either moved away from Chicago, ceased participating as an Airbnb host or host manager, or no longer used Airbnb short-term rentals because they had not returned to Chicago. Consequently, the individual plaintiffs could not demonstrate an injury that could be redressed by the court. In addition, Keep Chicago Livable claimed its only purpose was to advocate and educate on home-sharing in Chicago and did not allege any specific harm it suffered from the ordinance. It might have sued on behalf of its members, but it no longer had even one member-plaintiff with an injury the court could remedy.

The court returned the case to the district court to determine whether Keep Chicago Livable could identify an individual plaintiff with standing.

Seller had no cause of action against “Zestimate” he thought was too low

In Patel v. Zillow, Inc., 915 F.3d 446 (7th Cir. 2019), the plaintiff listed his home with an asking price of $1.495 million. On its website, Zillow estimated the house’s value (a “Zestimate”) at $1,333,350, which the plaintiff believed was too low and deterred potential buyers from making offers. Zillow declined the plaintiff’s request to delete or change the estimate. Zillow asserted that it generates Zestimates for about 100 million parcels by applying a proprietary algorithm to public data, such as a building’s location, tax assessment, number of rooms, and the recent selling prices for nearby parcels. However, Zillow does not inspect the property and cannot, therefore, adjust for attractiveness or maintenance. It informs users of the lack of inspection and potential inaccuracies but contends that Zestimates are useful starting points.

The plaintiff in this case asserted that Zillow violated the Illinois Real Estate Appraiser Licensing Act, which forbids the appraisal of real estate without a license, and the Illinois Uniform Deceptive Trade Practices Act, which forbids unfair or misleading trade practices. The federal court of appeals declined to determine whether a Zestimate constitutes an appraisal. Rather, it held first that the Appraiser Licensing Act only provides for criminal penalties and administrative enforcement through fines, cease-and-desist letters, and injunctions. The statute did not provide plaintiff with a private right of action to sue Zillow, even if Zestimates were to be considered appraisals.

Second, the court held that the Trade Practices Act applies to statements of fact, not opinions, and that it prohibits deception, not errors. The court found that Zestimates are clearly opinions. The fact that Zillow refused to delete or change its Zestimates on request did not make them less of an opinion and, further, plaintiffs were mistaken in thinking that the accuracy of an algorithmic appraisal system could be improved by changing or removing particular estimates. “The process is more accurate, overall, when errors are not biased to favor sellers or buyers.” The court affirmed the district court’s dismissal of plaintiff’s claims.

California consulting firm not owed finder’s fee under contract

In Eskenazi v. Slover, U.S. Dist. Ct. New Hampshire, Case No. 17‑cv‑610‑AJ (Dec. 12, 2018), the California plaintiff owned a mergers and acquisitions firm that provided financial planning and strategic consultation to health care entities. He signed a contract with defendant Lakeview, a New Hampshire company, to facilitate the sale of the company’s traumatic brain injury facilities in New Hampshire. Lakeview agreed to pay plaintiff a finder’s fee if any potential buyers introduced by plaintiff made offers. Defendants Spoffard and his New Hampshire company, New Freedom, signed a confidentiality agreement with Plaintiff in order to review Lakeview’s confidential business information. That agreement provided that if Spoffard circumvented the plaintiff and purchased Lakeview, Spoffard would owe the plaintiff the finder’s fee Lakeview agreed to pay. Just over a month later, another company owned by Spofford agreed to lease Lakeview’s facilities and subsequently exercised an option to purchase contained in the lease.

The plaintiff filed suit against both Lakeview and Spoffard for his finder’s fee in California state court, which was removed to federal court because of the diversity of state citizenship between the plaintiff and the defendants. The case was then transferred to a federal court in New Hampshire. Because the confidentiality agreement did not specify what state law should govern the transaction, that court was then faced with deciding which state’s law to apply—California, in which a finder’s fee could be awarded to a person not licensed as a real estate broker, or New Hampshire, which barred any fee to one not licensed under state law in any transaction involving real estate, “regardless of whether real estate is incidental to the transaction.”

The court engaged in an esoteric legal discussion on choice-of-law. Generally, a federal court with diversity jurisdiction would apply the choice-of-law rule of the state in which it sits. However, when the case is transferred to a court sitting in another state, the original state’s rules apply. Consequently, California’s rules on choice-of-law determined whether California or New Hampshire law would govern the case.

California had two different tests, a statutory test used for contract interpretation and a common-law government-interest test, but the outcome under either was the same. Analyzing the various factors of the statutory test (the place of the contract, the place of negotiation, the place of performance, the location of the subject matter of the contract, and place of business of the parties) and the common-law test (what interest each state has in having its own law applied and whose interests would be “more impaired” if its laws were not enforced), the court found that most of the factors were not determinative. The contract was initiated in California, negotiated electronically, and accepted in New Hampshire. The parties resided in different states. Both states were interested in upholding its laws. Ultimately, the court held that the location of the business property, New Hampshire, was the most significant factor and indicated that New Hampshire’s interests under its licensing act would be most impaired if not enforced.

Applying New Hampshire law, the court found that the plaintiff could not recover a finder’s fee on the sale of the medical facilities without being a licensed real estate broker in New Hampshire. The court dismissed plaintiff’s case.

Share this:

Lisa Harms Hartzler is Of Counsel at Sorling Northrup Attorneys in Springfield. She graduated from the American University Washington College of Law in 1978 and began her legal career in Chicago. She has provided legal support for the Illinois REALTORS’ local governmental affairs program since she joined Sorling in 2006 and focuses her practice on municipal law, general corporate issues, not-for-profit health care law, and litigation support.